What to Expect From the NYC Bitcoin Hearings

Christine Lagorio-Chafkin is a writer, editor, and reporter whose work has appeared in The New York Times, The Washington Post, theSan Francisco Chronicle, The Village Voice, and The Believer, among other publications. She is a senior writer at Inc.

Last summer, the New York State Department of Financial Services announced it was embarking upon an inquiry into creating a regulatory framework for virtual currencies. It promised that part of the fact-finding before creating regulations would include a public hearing. And nearly six months later, that hearing is taking place. Expect testimony from Bitcoin entrepreneurs, investors, venture capitalists, monetary policy scholars. Here's what else you'll likely hear.

The Winklevii are richer than you thought.As of last April, Cameron and Tyler Winklevoss announced they owned a stash of bitcoin worth about $11 million. Today, that's more like $55 million. The trust holding that wealth--it's been dubbed the Winklevoss Bitcoin Trust--is interesting in that it's a new, exchange-traded product, and it still faces what could be a lengthy vetting process by the U.S. Security and Exchange Commission.

Silk Road's dark cloud will be hovering.Charlie Shrem, the CEO of BitInstant, a Bitcoin payments-processing startup based in New York City funded partly by the Winklevoss twins, was taken into federal custody Sunday on money-laundering charges. The U.S. Department of Justice alleges that the company was converting money anonymously for people looking to purchase drugs on the online black market Silk Road--and was turning a profit doing so. Also charged was Robert Faiella, a Silk Road user.

This development could deeply shake the Bitcoin community, of which Shrem was an important pillar, having lobbied on behalf of the Bitcoin Foundation against burdensome government regulations. The news is certainly going to take up a lot of conversation offstage--if not also during hearings.

Still, there will be a 'kumbaya' vibe.The first panel of Tuesday is comprised of five individuals, each of whom have a lot of capital pinned to the success of Bitcoin. That's certainly a recipe for a start sunny to Bitcoin's future use (and the regulatory structure permitting it) in New York State. And don't expect a formal government inquiry from the rest of Tuesday or Wednesday's hearings.

The usually-skeptical voices in the U.S. Senate in November were almost curiously mild when it came to discussing Bitcoin's more illicit abilities and its dark past. Instead of dwelling on those, regulators talked about the vast potential for job-creation if the government could effectively regulate the crypto-currency.

The wild card here is the news of the arrests of Shrem and Faiella--coupled with the fact that Manhattan U.S. Attorney Preet Bharara seems determined to agressively pursue illegal uses of new forms of currency. His words Monday may haunt Bitcoin businesses for years to come:

"Truly innovative business models don’t need to resort to old-fashioned lawbreaking, and when bitcoins, like any traditional currency, are laundered and used to fuel criminal activity, law enforcement has no choice but to act."